the digital firm: electronic commerce and electronic business

THE DIGITAL FIRM: ELECTRONIC

COMMERCE AND ELECTRONIC

BUSINESS

Internet Technology and The Digital Firm

• Information technology infrastructure: Provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations

• Direct communication between trading partners: Disintermediation removes intermediate layers, streamlines process

• Round-the-clock service: Web sites available to consumers 24 hours a day

• Extended distribution channels: Outlets created for attracting customers who otherwise would not patronize

• Reduced transaction costs: Costs of searching for buyers, sellers, etc. reduced

Internet Technology and the Digital Firm

Business Model: • Defines an enterprise

• Describes how the enterprise delivers a product or service

• Shows how the enterprise creates wealth

New Business Models and Value Propositions

• Information asymmetry: One party in a transaction has more information than the other

• Increases richness: Depth and detail of information

• Increases reach: Number of people contacted

The Changing Economies of Information

Internet Business Models

• Information broker: Provide info on products, pricing, etc.

• Transaction broker: Buyers view rates, terms from various sources

• Online Marketplace: Concentrates information from several providers

• Content provider: Creates revenue through providing client for a fee, and advertising

• On-line service provider: Provides service, support for hardware, software products

• Virtual community: Chat room, on-line meeting place

• Portal: Initial point of entry to Web, specialized content, services

• Virtual storefront: Sells goods, services on-line

• Syndicator: Aggregate information from several sources sold to other companies

• Auction: Electronic clearinghouse products, prices, change in response to demand

• Dynamic pricing: real-time interactions between buyers and sellers determine worth of items

• Banner ad: Graphic advertising display, linked to the advertiser’s Web site

Categories of Electronic Commerce

• Business-to-customer (B2C): Retailing of products and services directly to individual customers

• Business-to-business (B2B): Sales of goods and services among businesses

• Consumer-to-consumer (C2C): Individuals use Web for private sales or exchange

ELECTRONIC COMMERCE

Business-To-Consumer

• Customer-centered retailing: Closer, yet more cost-effective relationship with customers

• Web sites: Provide information on products, services, prices, orders

ELECTRONIC COMMERCE

Business-To-Consumer

• Disintermediation: The removal of organizations or business process layers responsible for certain intermediary steps in a value chain

• Reintermediation: The shifting of the intermediary role in a value chain to a new source

ELECTRONIC COMMERCE

Benefits of Disintermediation to the Consumer

Manufacturer

Distributor Retailer

Retailer

Customer

Sweater

$48.50

$40.34

$20.45

ELECTRONIC COMMERCE

Interactive Marketing and Personalization

Web personalization:

• Benefits of using individual sales people

• Dramatically lower costs

ELECTRONIC COMMERCE

M-Commerce and Next Generation Marketing

Mobile commerce (m-commerce):• Wireless devices used to conduct both

business-to-consumer and business-to-business e-commerce transactions over the Internet

• Extend personalization by delivering new value-added services directly to customers at any time and place

ELECTRONIC COMMERCE

Customer Personalization

ELECTRONIC COMMERCE

Business-To-Business Electronic Commerce

Automation of purchase, sale transactions from business to business

• Private industrial networks: Coordination between companies for efficient supply chain management and collaborative activities

• Electronic hubs: On-line marketplaces, point-to-point connections, integrated information

ELECTRONIC COMMERCE

A Private Industrial Network

ELECTRONIC COMMERCE

A Net Marketplace

ELECTRONIC COMMERCE

Exchanges: Third-party net marketplace

• Primarily transaction oriented

• Connects buyers and suppliers for spot purchasing

ELECTRONIC COMMERCE

Electronic Commerce Payment Systems

SYSTEM DESCRIPTION

CREDIT CARDS SECURE SITE PRESERVES INFORMATION

ELECTRONIC CASH DIGITAL CURRENCY USED FOR MICROPAYMENTS

PERSON-TO-PERSON SEND MONEY TO SITES UNABLE TO USE CREDIT CARDS

DIGITAL WALLET SOFTWARE STORES CREDIT CARD INFORMATION

ELECTRONIC CHECK CHECK WITH ENCRIPTED DIGITAL SIGNATURE

SMART CARD MICROCHIP STORES ELECTRONIC CASH

ELECTRONIC BILL PAYMENT ELECTRONIC FUNDS TRANSFER

ELECTRONIC COMMERCE

Electronic Commerce Information Flows

ELECTRONIC COMMERCE

• Benefits

• Functional applications

• Supply chain management

How Intranets Support Electronic Business

ELECTRONIC BUSINESS AND THE DIGITAL FIRM

• Connectivity: accessible from most computing platforms

• Can be tied to internal corporate systems and core transaction databases

• Can create interactive applications

• Scalable to larger or smaller computing platforms

Benefits of Intranets

• Easy-to-use, universal Web interface

• Low start-up costs

• Richer, more responsive information environment

• Reduced information distribution costs

Benefits of Intranets

• Finance and accounting

• Human resources

• Sales and marketing

• Manufacturing and production

Functional Applications of Intranet

Functional Applications of Intranets

• Unproven business models

• Business process change requirements

• Channel conflicts

• Legal issues

• Security and privacy

MANGEMENT CHALLENGES & OPPORTUNITIES

TELECOMMUNICATIONS

NETWORKS

THE TELECOMMUNICATIONS REVOLUTION

• Telecommunications: Communication of information by electronic means

• The marriage of computers and communications: The 1996 Telecommunications Deregulation and Reform Act

• The Information Superhighway: High-speed digital telecommunications networks, accessible by the general public

COMPONENTS AND FUNCTIONS OF A TELECOMMUNICATIONS SYSTEM

• Computers to process information

• Terminals or any input/output devices that send or receive data

• Communications processors

• Communications software

Telecommunications System Components

Components of a Telecommunications System

• Transmit information• Establish interface between sender and

the receiver• Route messages along most efficient

paths• Perform elementary processing of

information • Perform editorial tasks on data • Convert message speed or format• Control flow of information

Functions of Telecommunications Systems

Analog signal

• Continuous waveform

• Passes through communications medium

• Used for voice communications

Types of Signals: Analog and Digital

Digital signal

• Discrete waveform

• Transmits data coded into two discrete states as 1-bits and 0-bits

• Used for data communications

• Translates computer’s digital signals into analog and vice versa

Types of Signals: Analog and Digital

Functions of the Modem

• Twisted wire: Telephone systems

• Coaxial cable: Cable television

• Fiber optics and optical networks: Dense wave division multiplexing (DWDM)

Communications Channels

• Wireless transmission: Microwave, Satellites, Paging systems, Cellular telephones, Personal communication Services, Personal digital assistants, Mobile data networks

• Transmission: Baud, bandwidth

Communications Channels

Frequency Ranges for Communications Media and Devices

Amoco’s Satellite Transmission System

• Front-end processor: Manages communications for the host computer

• Concentrator: Collects and temporarily stores messages

• Controller: Supervises communication traffic

• Multiplexer: Enables single communication channel to carry data transmissions

Communications Processors and Software

COMMUNICATIONS NETWORKS

• Star Network: All computers and other devices are connected to a central host computer

• Bus Network: Links a number of computers by a single circuit

• Ring Network: All computers are linked by a closed loop

Network Topologies

A Star Network Topology

A Bus Network Topology

A Ring Network Topology

Private Branch Exchanges

• Central switching system

• Handle firm’s voice and digital communications

Private Branch Exchanges, Local Area Networks (LANs), and Wide Area Networks (WANs)

Local Area Networks

• Telecommunication network

• Require its own dedicated channels

• Encompass a limited distance

• Gateway, router, Network Operating System (NOS), peer-to-peer

A Local Area Network (LAN)

Wide Area Networks (WANs)

• Telecommunication network

• Span large geographical distance

• Consist of variety of cable, satellite, and microwave technologies

• Switched lines, dedicated lines

Value-Added Networks (VANs)

• Private, multipath, data-only, third-party-managed network

Other Network Services

• Packet switching, Frame Relay, Asynchronous transfer mode (ATM)

• Integrated Services Digital Network (ISDN), Digital subscriber line (DSL), Cable modems, T1 line, Broadband

Network Services and Broadband Technologies

Packed-Switched Networks and Packet Communications

Converged network• Network with technology • Enables voice and data to run over a

single network

Unified messaging• System combining voice messages,

email, and fax

Network Convergence

• E-mail: Eliminates telephone tag and costly long-distance telephone charges

• Groupware: Enables work groups at different locations to participate in discussion forums and work on shared documents and projects

Electronic Mail and Groupware

Electronic Commerce and Electronic Business Technologies

• Voice mail: Digitizes spoken message and transmits it over a network

• Fax: Digitizes and transmits documents over telephone lines

Voice Mail and FaxVoice Mail and Fax

• Teleconferencing: Ability to confer with a group of people simultaneously

• Data conferencing: Two or more users can edit and modify data files simultaneously

• Videoconferencing: Participants are able to see each other over video screens

Teleconferencing, Data-conferencing, and Videoconferencing

• Distance learning: Education or training delivered over a distance to individuals in one or more locations

• E-learning: Instruction delivered online using the Internet or private networks

Digital Information Services, Distance Learning and E-Learning

• Direct computer-to-computer exchange between two organizations of standard business transaction documents

Electronic Data Interchange (EDI)

Enhancing ManagementDecision Making for the Digital Firm

Decision-Support Systems (DSS)

• Computer system at the management level of an organization

• Combines data, analytical tools, and models

• Supports semi-structured and unstructured decision making

• Provides reports based on routine flow of data

• Assists in general control of the organization

MIS and DSS

• Emphasizes change, flexibility, rapid response, models, assumptions, ad-hoc queries, and display graphics

MIS and DSS

Model-Driven DSS

• Primarily stand-alone

• Uses model to perform “what-if” and other kinds of analysis

Types of Decision-Support Systems

• Data-driven DSS: Supports decision making by allowing users to extract and analyze useful information previously buried in large databases

• Data-mining: Finds hidden patterns and relationships in large databases to infer rules from them and predict future behavior

Cargo revenue optimization of Continental Airlines

• Associations: Occurrences linked to a single event

• Sequences: Events linked over time

• Classification: Recognizing patterns that describe the group to which an item belongs

• Clustering: Similar to classification when no groups have yet been defined. Discovers different groupings within data

Overview of a decision-support system (DSS)

• DSS Database: Collection of current or historical data from a number of applications or groups. Can be a small PC database or a massive data warehouse

Components of DSS

• DSS Software System: Collection of software tools used for data analysis, such as OLAP tools, data-mining tools, or a collections of mathematical and analytical models

Components of DSS

• Model: Abstract representation illustrating components or relationships of a phenomenon

• Sensitivity Analysis: Models that ask “what-if” questions repeatedly to determine the impact of changes in one or more factors on the outcomes

Components of DSS

Sensitivity analysis

Examples of Decision-Support Systems

• General Accident Insurance: Customer buying patterns and fraud detection

• Bank of America: Customer profiles• Frito-Lay, Inc.: Price, advertising, and

promotion selection

DSS Applications and the Digital Firm

• Southern Railway: Train dispatching and routing

• Texas Oil and Gas Corporation: Evaluation of potential drilling sites

• The Gap: Inventory stocking and merchandising

• United Airlines: Flight scheduling, passenger demand forecasting

• U.S. Department of Defense: Defense contract analysis

• By analyzing several years of sales data for similar items, the software estimates a “seasonal demand curve” for each item and predicts how many units would sell each week at various prices.

• The software uses sales history to predict how sensitive customer demand will be to price changes

DSS for Pricing Decisions

• Can help firms model inventory stocking levels, production schedules, or transportation plans

• Can provide firms with information on key performance indicators such as lead time, cycle time, inventory turns, or total supply chain costs

DSS for Supply Chain Management

DSS for customer analysis and segmentation

Predictive Analysis

• Use of data-mining techniques, historical data, and assumptions about future conditions to predict outcomes of events

DSS for Customer Relationship Management

• Data Visualization: Technology for helping users see patterns and relationships in large amounts of data by presenting the data in graphical form

• Geographic Information System (GIS): System with software that can analyze and display data using digitized maps to enhance planning and decision making

Data Visualization and Geographic Information Systems (GIS)

Customer Decision-Support System (CDSS)

• System to support the decision-making process of an existing or potential customer

Web-Based Customer Decision-Support Systems

Group Decision-Support Systems (GDSS)

• Group Decision-Support System (GDSS): An interactive computer-based system to facilitate the solution to unstructured problems by a set of decision makers working together as a group

What is a GDSS?

• Hardware: Conference facility, electronic hardware

• Software tools: Tools for organizing ideas, gathering information, and ranking and seeking priorities

• People: Participants, trained facilitator, staff supporting hardware and software

Components of GDSS

• Electronic questionnaires

• Electronic brainstorming tools

• Idea organizers

• Questionnaire tools

Components of GDSS

• Tools for voting or setting priorities

• Stakeholder identification and analysis tools

• Policy formation tools

• Group dictionaries

Components of GDSS

• Each attendee has a workstation

• Workstations are networked and connected to the facilitator’s console

• Data the attendees forward to the group are collected and saved on a file server

• Facilitator projects computer images onto the projection screen

Overview of a GDSS Meeting

Group system tools

• Number of attendees can increase while productivity increases

• More collaborative atmosphere

• Software tools follow structured methods for organizing and evaluating ideas and preserving the results of meetings

How GDSS Can Enhance Group Decision Making

• Increase the number of ideas generated

• Can lead to more participative and democratic decision making

Organizational Memory

• Store learning from an organization’s history that can be used for decision making and other purposes

Executive Support in the Enterprise

• Focus on the information needs of senior management

• Combine data from internal and external sources

• Create a generalized computing and communications environment that can be focused and applied to a changing array of problems

Executive Support Systems (ESS)

• Monitor organizational performance

• Track activities of competitors

• Spot problems

• Identify opportunities

• Forecast trends

Executive Support Systems (ESS)

• Bring together data from the entire organization

• Allow managers to select, access, and tailor data

• Enable executive and any subordinates to look at the same data in the same way

The Role of Executive Support Systems in the Organization

Drill Down

• The ability to move from summary data to lower and lower levels of detail

Developing ESS

• Ease of use

• Facility for environmental scanning

• External and internal sources of information to be used for environmental scanning

• Analyze, compare, and highlight trends

• Provide greater clarity and insight into data

• Speed up decision making

Benefits of Executive Support Systems

• Improve management performance

• Increase management’s span of control

• Better monitoring of activities

Benefits of Executive Support Systems

ESS for Competitive Intelligence

• Identify changing market conditions

• Formulate responses

• Track implementation efforts

• Learn from feedback

Executive Support Systems and the Digital Firm

Balanced Scorecard

• Model for analyzing firm performance that supplements traditional financial measures with measurements from additional business perspectives, such as customers, internal business processes, and learning and growth

Enterprise-Wide Reporting and Analysis

Strategic performance management tools

for enterprise systems

• SAP: Web-enabled mySAP.com™, Management Cockpit

• PeopleSoft: Web-enabled Enterprise Performance Management (EPM)

Enterprise-Wide Reporting and Analysis

Activity-Based Costing

• Model for identifying all the company activities that cause costs to occur while producing a specific product or service so that managers can see which products or services are profitable or losing money and make changes to maximize firm profitability

End of Lecture

the digital firm: electronic commerce and electronic business

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